Nouriel Roubini, RGE Monitor, who accurately predicted the current economic crisis: "Last week we argued that, with the nationalization of Fannie and Freddie, comrades Bush, Paulson and Bernanke had started transforming the USA into the USSRA (United Socialist State Republic of America). This transformation of the USA into a country where there is socialism for the rich, the well connected and Wall Street (i.e. where profits are privatized and losses are socialized) continues … with the nationalization of AIG."

Atrios: "The entire financial system is practically collapsing and they're lamenting the possibility of more regulation...People who prattle on about 'the free market' are usually too stupid to have a clue how complicated and pervasive the "rules" had to be to to get a well-functioning modern market system: sophisticated concepts of contracts and enforcement, property rights, legal entities, proper accounting, bankruptcy, limited liability, etc... etc..., did not descend from the heavens but were, in fact, created."

Matt Yglesias: "Who knew the 'Washington Consensus' would die in Washington, DC under a Republican President in a mad fit of bailouts and nationalizations?"

• Lehman Brothers was like the little kid pulling the tail of a dog. You know the kid is going to get hurt eventually, and so no one is surprised when the dog turns around and bites the kid. But the kid only hurts himself, so no one really cares that much.

• Bear Stearns is the little pyro --- the kid who was always playing with matches. He could harm not only himself, but burns his own house down, and indeed, he could have burnt down the entire neighborhood. The Fed stepped in not to protect him, but the rest of the block.

• AIG is the kid who accidentally stumbled into a bio-tech warfare lab . . . finds all these unlabeled vials, and heads out to the playground with a handful of them jammed into his pockets.

Is Financial Innovation just another word for excessive and reckless leverage?

Apparently so.

As we learn this morning via Julie Satow of the NY Sun, special exemptions from the SEC are in large part responsible for the huge build up in financial sector leverage over the past 4 years --- as well as the massive current unwind

Satow interviews the above quoted former SEC director, and he spits out the blunt truth: The current excess leverage now unwinding was the result of a purposeful SEC exemption given to five firms.

You read that right --- the events of the past year are not a mere accident, but are the results of a conscious and willful SEC decision to allow these firms to legally violate existing net capital rules that, in the past 30 years, had limited broker dealers debt-to-net capital ratio to 12-to-1.

Instead, the 2004 exemption --- given only to 5 firms --- allowed them to lever up 30 and even 40 to 1.

Who were the five that received this special exemption? You won't be surprised to learn that they were Goldman, Merrill, Lehman, Bear Stearns, and Morgan Stanley.

As Mr. Pickard points out that "The proof is in the pudding — three of the five broker-dealers have blown up."

"Privatize profits, socialize losses" is a de facto definition of fascism (or Crony Capitalism, if you will). Socialism entails government ownership of the means of production (as does Communism). Free Market Capitalism is the private ownership of the means of production along with the assumption of the risk associated with doing business.
Obviously we have been barreling headlong into fascism for quite some time. Now, with the nationalization of everything from mortage banks to insurance companies (the auto industry as well?), it appears that we are now moving to embrace embrace Socialism. Should we be surprised that the NEOconservatives have reverted to their Trotskyite roots?

It is so much wors that anything that we could have imagined. A couple of new puzzle pieces fell into place and I've commented on it elsewhere but it needs repeating.

The Treasury, through the bail out bill, is being turned into a true fourth branch of the government with the ability to spend any way it so wishes and the decisions will not be reviewable by any other branch of government or even by a court. A blank-check Agency. Terrifying. Link to a full quote of the relevant section and discussion:

Several talk-show commentators have said (in the last 2 days) that the test for a bail out seems to be weather or not an institution is large enough to topple foreign institutions if it fails as AIG would. Smaller institutions that would have only a domestic impact would be allowed to fail but it wasn't in any-ones interest to destabilize the economy of many countries so that would be prevented. Smaller domestic failures (and there will be many of them in the coming year) will just be tolerated.

The authority to mitigate foreign damage is now in the process of being expanded to directly bailing out foreign institutions weather they operate on American soil or not.

We are now poised through this bill to start directly bailing out failing institutions in other countries. This is the ultimate act of Republican cronyism and corruption, the wholesale looting of America and the indentured servitude of her workers for a generation. Link below:

As noted by a quote from DES, this was not an accident or a process with an unforseen end; this was deliberate inflation and profit-taking facilitated by a willing Administration and when needed, Congress.

This bill in relevant parts, needs to be stopped. Folks need to be calling their Representatives and Senators.

I wrote in a posting above "The authority to mitigate foreign damage is now in the process of being expanded to directly bailing out foreign institutions weather they operate on American soil or not." ... "We are now poised through this bill to start directly bailing out failing institutions in other countries"

That is incorrect. Paulson's plan is to intercede for foreign institutions operating on American soil. To protect their American workers.